Platform Price Decision And Marketing Investment In The Presence Of Network Effects And Threshold Effects

Platforms enable interactions between two groups of end-users by providing the service or the venue for trading. Those markets being connected and established are termed as two-sided market. Examples of platform corporations holding two-sided markets are fairly common, such as social platforms, group deal platforms, and meal ordering platforms. Pricing and investment decisions are crucial to the two-sided markets. The network effects and threshold effects of the pricing and investment issues indeed draw the quantity of attention from the both side of academia and industry.To better illustrate the research question, a game theory model is constructed on the basis of two real world scenarios. The equilibrium strategy for the model is therefore derived by incorporating the impacts of network effects as well as the threshold effects. Two contributions can be concluded from the study.Firstly, a two-sided market game model has been constructed with positive cross-platform network by considering the pricing strategy with the presence of third-party access. A two-stage Nash equilibrium model has been proposed to evaluate the influence of cross-platform network on pricing decisions of the two-sided platforms. It is revealed that the third-party access makes platform asymmetry for users, and that the cross-platform network poses a non-monotonic effect on the number of users of the platform. In addition, a more significant presence of the third-party access will lead to a higher pricing to the service providers. The platforms transfer the costs of services from the users to the service providers and to some extent, this strategy actually reduces the profit of the platforms.Secondly, a platform game model has been consolidated so as to deal with the threshold effects in the pricing and investment strategies for two-sided markets. The influence of the threshold effects and the network effects in pricing and investment for platforms are recognized via the Nash game. It was discovered that the small-and medium-sized platforms are more sensitive to the threshold effect, and that an increase of the threshold effect will consequent in a decrease of the profit. Therefore, three management solutions are identified and platforms shall apply the management solutions according to the different levels of user thresholds to minimize the disadvantages brought by the threshold effect.